By J.C. Hobbs, Extended Forecast
Enid News and Eagle
ENID, Okla. —
I have received many inquiries from taxpayers concerning a fear that if they have to apply for an extension of time to file their tax return this will result in their return being subject to an audit.
There also is a fear that filing an amended return will cause them to be audited. Simply filing an amended return or filing for an extension does not affect the audit screening and selection process and does not increase the likely hood of a return to be selected for audit.
The audit selection process is designed to compare an individual tax return to a set of standards or “norms” for similar returns. The Internal Revenue Service’s National Research Program is to determine what the “norms” are by looking at other similar tax returns. These similar tax returns are selected using a random sampling technique, and the information is compared and evaluated to set the “norms.”
To be selected for an audit, a return has to first be compared to these “norms” to determine if it needs to be further evaluated. The next step in the selection process requires a review of the return by an experienced auditor. This auditor looks closely at the tax return and either accepts the return as filed or determines further review is needed due to questionable items found on the return. The questionable items are identified and the return is sent to an examination group.
Even though the tax return was reviewed, questionable items were found, and it was assigned to an audit group, the taxpayer may not be audited. When the return is assigned to a group, the manager also will review the tax return. The manager looks at a variety of items to determine which audit group will be assigned the task of auditing the return. Audit groups are specialized to look at construction, agriculture, timber, manufacturing, as well as other areas since there are specific factors and rules that apply to each. Based upon the manager’s review and findings, the return may be accepted as filed or it may be assigned to an auditor.
The auditor who is assigned the tax return reviews it once more and closely looks at the questionable items. This review can result in the return being accepted as filed, or the auditor will contact the taxpayer to establish an appointment. The taxpayer will either be contacted by telephone or by mail due to privacy and disclosure requirements. The IRS does not use email to contact a taxpayer.
An audit can be conducted in one of two ways. Audits can be conducted completely by mail. These are known as correspondence audits. With this type of audit, a taxpayer will receive a letter asking for additional information about questionable items on the return. These could include further information about income, expense, and deductions on the tax return. The second type of audit is an in-person audit and can be conducted at the local IRS office, your tax preparer’s office or your home or place of business.
The IRS only audits about one percent of individual tax returns; however, if you are the taxpayer being audited, this is not a consoling statement. In my next article, I will present more information about the items that can cause a tax return to be reviewed for audit. Simply filing an amended return or requesting an extension will not result in an audit of your tax return.
Hobbs is Oklahoma Cooperative Extension Service assistant extension specialist.